2016 (3) TMI 969 - AT - Income Tax

Tribunal grants registration under section 12A of Income Tax Act, emphasizes charitable nature

Shree Balaji Educational Trust, C/o Anil Ashok & Associates Versus CIT, Dehradun

The Tribunal set aside the CIT's order and directed the CIT to grant registration under section 12A of the Income Tax Act to the applicant trust. It was ... Registration under section 12A (a) cancelled - Held that:- CIT(E) has not brought out any allegation to show that the receipt/income of the assessee's trust was not used for the educational purposes and the same was used for other purposes beyond the objectives of the applicant trust. CIT dismissed application of the assessee for grant of registration under section 12A of the Act by recording incorrect and irrelevant facts and circumstances and the assessee successfully established that it was created for the charitable purposes including education activity and it used its funds for the purpose of educational activities and therefore the applicant trust is eligible for registration under section 12A of the Act. During the assessment proceedings while considering such claim of assessee the AO is fully empowered to examine and verify these facts that whether the assessee/applicant has applied its receipts towards its charitable objects and the AO is also empowered to verify as to whether the applicant assessee is conducting any activity in the name of charitable which is actually in the nature of trade commerce or business. These sovereign powers of the tax authorities are perpetual which cannot be taken away only by grant of registration under section 12A of the Act. It is also relevant to mention that the grant of registration under section 12A of the Act merely a pre-qualification for claiming exemption under section 11 and other relevant provisions of the Act, which should be granted by recording satisfaction as required under the said provision. Thus we hold that the CIT dismissed application for registration without any justified reason and by considering incorrect and irrelevant facts and the ld. CIT(A) has not brought any adverse finding on record to show that the objects of the Trust are not charitable or non genuine. - Decided in favour of assessee Issues Involved:1. Denial of registration under section 12A(a) of the Income Tax Act, 1961.2. Charitable nature of the trust and its activities.3. Application of surplus funds for educational purposes.4. Criteria for granting registration under section 12A.5. Examination of objects and genuineness of activities for registration.Detailed Analysis:1. Denial of Registration under Section 12A(a):The primary issue was the denial of registration to the applicant trust under section 12A(a) of the Income Tax Act, 1961. The CIT, Dehradun, rejected the application on the grounds that the trust did not meet the necessary criteria.2. Charitable Nature of the Trust and Its Activities:The applicant trust argued that it was incorporated with the main objective of providing education, which is considered a charitable purpose under the Act. The trust deed explicitly stated that the trust's funds would be used exclusively for educational purposes and not for private benefits. The entire surplus was transferred to the capital fund without any profit distribution to trustees.3. Application of Surplus Funds for Educational Purposes:The CIT(E) rejected the registration based on two reasons: the trust should provide free education to some needy students, and the trust was increasing its receipts. The applicant countered that under the amended section 2(15) of the Act, education per se is a charitable purpose, and surplus funds used for educational purposes do not indicate a profit motive. The Supreme Court in Queen's Educational Society Vs CIT held that if surplus funds are ploughed back for educational purposes, the institution exists solely for educational purposes.4. Criteria for Granting Registration under Section 12A:The Tribunal noted that the CIT(E) did not provide any evidence that the trust's receipts were used for non-educational purposes. The reasons cited by the CIT(E) were deemed irrelevant for denying registration under section 12A. The Tribunal emphasized that the mere increase in assets and receipts does not imply that the trust exists for profit.5. Examination of Objects and Genuineness of Activities for Registration:The Tribunal referred to various judgments, including those from the Supreme Court and High Courts, which clarified that at the stage of registration under section 12AA, the Commissioner is only required to examine the objects of the society and the genuineness of its activities. If the objects are charitable and the activities are genuine, registration should be granted. The Tribunal concluded that the CIT's decision was based on incorrect and irrelevant facts, and the trust successfully demonstrated its charitable nature and compliance with educational purposes.Conclusion:The Tribunal set aside the CIT's order and directed the CIT to grant registration under section 12A of the Act to the applicant trust. It was emphasized that the grant of registration does not automatically entitle the trust to exemption under section 11, and the Assessing Officer retains the authority to verify the application of funds during assessment proceedings. The appeal of the assessee was allowed, and the order was pronounced in the open court on 18.3.2016.